International

It was at the end of 2009 that Greece announced that its budget deficit and national debt were much higher than had previously been stated. In the months that followed the interest rates on loans which the country had to pay on the financial markets rocketed. Bankruptcy loomed. The European Union, together with the International Monetary Fund, took the decision to extend a loan of €110 billion. An important motive behind the loan was the fear that without it other Eurozone countries would be forced into bankruptcy. In addition, there was uncertainty as to whether the banks in Europe which had lent Greece a great deal of money would survive the country’s bankruptcy.

On 7th May, 2010 the Dutch national Parliament debated the loans to Greece. Ewout Irrgang, at the time a Member of Parliament and the SP’s parliamentary spokesman on economic and financial affairs, had this to say:

My political group has in this debate and earlier debates made it clear that we are not in principle opposed to offering aid to a country in difficulties, whether that be Greece or another European country. In recent weeks something has occurred which has provoked growing doubts over the sustainability of the Greek national debt. This means that the SP group considers restructuring of the debt to be not only in the interests of Greece, ensuring that the debt is indeed sustainable, but also in the interests of the Netherlands. If we extend loans to Greece, it will have to be in a condition to repay these loans. That is also fair to the banks and the financial sector, which have been part of the problem and must now also be part of the solution.’

However, a motion from the SP to force the banks to pay for Greece’s rescue by writing off part of the debt was supported only by the small Animals’ Party, and so fell.

Eighteen months later the forecasts for the Greek economy did indeed prove to have been too rosy, and the debt was declared by the EU and the IMF to be still unsustainable, with the two institutions deciding to annul 50% of the private debt, as well as granting a second support package eventually amounting to €130 billion. In the meantime the banks and other private creditors have grasped every opportunity to divest themselves of Greek bonds, leaving less than a third of the Greek national debt in their hands. Debt annulment from the private sector thus contributed less to shoring up the dam than it would have done had it been done immediately.

Irrgang reacted as follows: ‘It’s no solution - because the Greek problem hasn’t been solved; this is just muddling through. I can certainly see it’s a step in the right direction, but not sufficient to ensure that the Greeks will be able to become independent again. Writing off 50% of the debt sounds a lot, but it refers only to debts to the banks; the total Greek debt will be reduced by a mere 28%.’

The write-off was thus too little too late. In December of last year the EU and IMF came to precisely the same conclusion and relaxed the loan conditions by, amongst other things, charging a lower rate of interest. In addition, Dutch Finance Minister Jeroen Dijsselbloem no longer ruled out the possibility that in the future more of the Greek debt would be annulled. Three years on, then, the Greek debt is almost wholly in public hands and the Netherlands is amongst those countries paying the price for the failure to annul the debt in a timely fashion.

The IMF has now admitted that earlier debt rescheduling would have eased the burden attendant on Greece’s economic adjustment and contributed to a less dramatic shrinkage of production. The delay, they now say, offered private creditors the chance to reduce their exposure and shift the debt into public hands, a shift which was conducted on a large scale and left the public sector in the lurch.